Priority access deals could result in “slow suicide” for ISPs

The ISPs insist that priority access deals will be crucial for maintaining and …

As Ars readers know, of late there's been a huge amount of debate about the impact that priority access deals would have on the 'Net. ISPs say they've got to have this option to finance their networks. They've gone so far as to insist that they have the First Amendment right to charge content providers more for better (or not inferior) access to their subscribers.

Meanwhile, the content companies (especially the game developers) push back that the trend would create walled garden environments and slow down content growth. And the reform groups warn that the plan would allow the ISPs to pick winners and losers on the 'Net.

But now a significant figure in the discussion is asking whether priority arrangements would hurt the ISPs themselves. In his latest blog post titled "The Slow Suicide of Net Discrimination," Benoît Felten, CEO of Diffraction Analysis, argues that the notion that the ISPs must have this option "is a delusion, and a dangerous one at that."

Despite pushing net-discrimination across the board, "my clients seemed never to have looked at the economics," Felten adds.

Ever since network operators started branching out from communications into adjacent businesses, there have been content deals between them and content providers. By and large, these deals haven't been very beneficial to the telcos, at least not on the revenue side. IPTV helped drive broadband penetration, but it's not a profitable business line and most of the operators I talk to on that subject suggest that if they could get rid of that business they would. It's essentially down to two things: the fact that content owners have multiple routes to market and always play one against the other to get the best deals, and the fact that content rights are so fragmented that no scale can be built efficiently in distribution of content.

Who would win a priority access war?

Subscribers don't buy access to AT&T or Comcast just for the abstract right to get online, Felten notes. They hook up for access to Google, Facebook, Twitter, and Youtube. This gives these companies an enormous advantage with consumers.

"Think about this," Felten suggests, "if Google was to refuse a toll to access the AT&T network and discontinued its services over the AT&T network as a consequence, who would suffer the most? I think it would be AT&T, and I think it would have very quick effects on their customer churn. I don't think it will ever get to that, but it does suggest that the only content and application providers that the network operators could badger into paying would be small guys who probably can't afford to pay anyway."

It is hard to imagine it getting to that, given that in many parts of the United States consumers have few alternatives when it comes to ISPs. But we asked Felten to get his sense of why, if this is the case, Google joined up with Verizon to suggest a legislative framework for net neutrality with significant exemptions for "differentiated services" and wireless broadband.

"I think the VZ/Google proposal aimed at breaking the [net neutrality] debate deadlock," he told Ars. "It was a compromise which meant that neither was getting what they actually wanted. That's the nature of compromise. But keep in mind that the fact that I think Google would have the upper hand in a net discriminated ecosystem doesn't necessarily mean that they want to get into a tug o' war with every network operator out there. A stable framework no matter how beneficial to one or the other party has the advantage of being stable, a 'known' quantity."

As for the ISPs—be careful what you ask for, Felten warns.

"Net-discrimination is a typical case of a lose/lose scenario," his post concludes. "[N]etwork operators have nothing to gain, content and application providers have nothing to gain, and customers have everything to lose. Defending net neutrality is important for a lot of reasons, I just wish that those opposing it knew how little net-discrimination will serve them."

Matthew Lasar / Matt writes for Ars Technica about media/technology history, intellectual property, the FCC, or the Internet in general. He teaches United States history and politics at the University of California at Santa Cruz.